Chicago's Privatized Parking Meters Sour Airport Lease Deal

Close to 19 million passengers come through Chicago's Midway Airport each year, and many will spend a lot of cash here — on food, drinks, books, gum, parking and rental cars — not to mention the landing fees and gate fees paid by airlines.

There are a lot of opportunities to make money in a bustling hub airport like this, and the city was hoping to cash in.

Last winter, when the city opened the bidding process in what would have been the first commercial airport to go private, six investment firms expressed interest. But by this summer, the number dwindled to just two, and now, one of the final two has dropped out.

Mayor Rahm Emanuel's response? "I said no to the privatization on Midway. It was not right for the city," Emanuel said earlier this month.

Emanuel says without competitive bids, which he hoped could net the city up to $2 billion up front, he could not guarantee a good return on Midway's lease.

But what got in the way actually had nothing to do with the airport. It was Chicago's parking meters.

What 'Hampered The Deal'

Former Mayor Richard Daley privatized the city's parking meters for $1 billion five years ago and rammed the sweetheart deal through a compliant city council without releasing many details to the public. Parking meter rates skyrocketed to the highest in the country. The city spent the $1 billion up front to balance its budget. And for the 75-year term of the lease, Chicago taxpayers still must reimburse the private operator millions of dollars a year for parking spaces the city has to take out of commission. (A 2009 report from the city's inspector general called it a "dubious financial deal.")

With Chicago voters leery of new privatization deals, Emanuel tried to impose conditions on the Midway deal. He shortened the lease term to no more than 40 years, capped food and parking prices and mandated revenue sharing on top of the big payment the private operator would make up front. The mayor also created an independent oversight panel to review the terms of any Midway lease, chaired by Peter Skosey with the non-profit Metropolitan Planning Council.

"Some of these constraints that we put on it to protect the public interest may have hampered the deal a little bit, and I think the numbers just didn't come out as favorably," Skosey says.

In other words, the private investors didn't see enough profit to make it worth their risk.

Now, experts say that doesn't mean privatization deals shouldn't have protections. The key is balancing safeguards for taxpayers with the opportunity for private investors to make a profit. That balance is trickier when leasing airports, as opposed to simpler assets, such as toll highways and bridges, says Joseph Schofer, an expert in transportation policy and finance at Northwestern University.

"These are bigger deals, more complicated deals and what the municipality, what the region or what they government agency is looking for is the movement of a big chunk of cash across the table to them so they can use that. And I think that investors are looking at that saying, 'There's a lot of risk and I'm not that anxious to be the first one to do that,' " Schofer says.

But, Schofer and other experts say airport privatization in this country will eventually take off, especially as the government entities that own and run them increasingly find it more difficult to raise big sums of money in more traditional ways.

Copyright 2018 NPR. To see more, visit http://www.npr.org/.

STEVE INSKEEP, HOST:

You know, hundreds of airports around the world are run by private firms, but only two small airports in the United States have tried privatization and one of those went bankrupt. Mayor Rahm Emanuel tried to make Chicago's Midway Airport the third and largest airport to go this route, but he recently grounded his plans. NPR's David Schaper explains why.

DAVID SCHAPER, BYLINE: I'm standing in the terminal of Chicago's Midway Airport. Close to 19 million passengers come through here each year, and many spend a lot of cash - on food, drinks, books, gum, then there's parking and rental cars, not to mention the landing fees and gate fees paid by the airlines. In other words, there are lots of opportunities to make money in a bustling hub airport like this, and Chicago was hoping to cash in.

Last winter, when the city opened the bidding process, six private investment firms expressed interest. But by this summer the number had dwindled to just two, and now one of the final two has dropped out. Mayor Rahm Emanuel's response?

MAYOR RAHM EMANUEL: I said no to the privatization on Midway. It was not right for the city.

SCHAPER: Emanuel says without competitive bids, which he hoped could net the city up to $2 billion up front, he could not guarantee a good return on the Midway lease.

EMANUEL: And it didn't meet the standards for the city and I'm not going to compromise the standards as it relates to protecting the taxpayers and making sure that they get the right type of value.

SCHAPER: But what got in the way actually had nothing to do with the airport. It was Chicago's parking meters. Former Mayor Richard Daley privatized the city's parking meters for $1 billion five years ago and rammed the sweetheart deal through a compliant city council without releasing many details to the public.

Parking meter rates skyrocketed to the highest in the country. The city spent the $1 billion up front to balance the budget. And for the 75-year term of the lease, Chicago taxpayers still must reimburse the private operator millions of dollars a year for parking spaces the city has to take out of commission. Peter Skosey is with the non-profit Metropolitan Planning Council.

PETER SKOSEY: So this was the gift that kept on giving and people continue to find reasons to not like it.

SCHAPER: So with Chicago voters now leery of any new privatization deals, Mayor Emanuel tried to impose conditions on the Midway deal. He shortened the lease term to no more than 40 years, capped food and parking prices and mandated revenue sharing on top of the big payment the private operator would make up front.

The mayor also created an independent oversight panel to review the terms of any Midway lease, which Skosey chaired.

SKOSEY: Some of these constraints that we put on it to protect the public interest may have hampered the deal a little bit, and I think the numbers just didn't come out as favorably.

SCHAPER: In other words, the private investors didn't see enough profit to make it worth their risk. Now, experts say that doesn't mean privatization deals shouldn't have protections. The key is balancing safeguards for taxpayers with the opportunity for private investors to make a profit. Joseph Schofer is an expert in transportation policy and finance at Northwestern University and he says the balance is trickier when leasing airports as opposed to simpler assets such as toll highways and bridges.

JOSEPH SCHOFER: These are bigger deals, more complicated deals, and what the municipality, what the region or what the government agency is looking for is the movement of a big chunk of cash across the table to them so they can use that. And I think that investors are looking at that and saying there's a lot of risk, I'm not that anxious to be the first one to do that.

SCHAPER: But Schofer and other experts say airport privatization in this country will eventually take off, especially as the government entities that own and run them increasingly find it more difficult to raise big sums of money in more traditional ways. David Schaper, NPR News, Chicago.

DAVID GREENE, HOST:

Okay. Let's explore this more with another expert in the field of transportation. Robert Puentes is a senior fellow with the Brookings Institution's Metropolitan Policy Program and he's the author of several studies on transportation funding. Robert Puentes, welcome to the program. Thanks for coming on to talk to us about this.

ROBERT PUENTES: Thank you so much for having me.

GREENE: So this airport deal in Chicago that we just heard about fell apart in large part because the city was trying to put in a lot of protections for taxpayers and the investors ultimately decided this just wasn't a good deal for them. Is that one of the tensions that often causes deals like this to fall through?

PUENTES: In fact, I think it's some of the new concerns that folks have particularly because we've seen in Chicago and other places that there have been deals that have gone badly and there is a lot of concern that there has to be much more scrutiny placed behind these deals to make sure that the public is not holding a disproportionate share of the risk.

Part of the problem that we have in the United States is the folks on the ground on the public side, there really isn't the same kind of technical capacity to negotiate these really complex, very contentious deals.

GREENE: In other countries they've set up these institutions to kind of play down the middle, I mean work with both investors and with the public sector. Is that idea catching on in the United States?

PUENTES: The idea of having some kind of public-private partnership unit that would serve as some intermediary is starting to catch on. There are a couple of states that are starting to do this, but only a couple. But we also need it on the federal level.

GREENE: What are the key building blocks to a successful deal?

PUENTES: Share your risks and rewards is the number one thing. Then these things have to be transparent. This can't be even perceived as being backroom deals or anything that's not up on top of the table. But then they have to both have to adhere to public policy goals and private sector interests. The private sector interests are generally easy to understand.

They're looking for some kind of financial return. So public policy goals, that may tend to change, they may shift from administration to administration, so having those things be consistent and clear is absolutely critical to minimize public policy risk down the line.

GREENE: Let me just raise an example that I had read about. A local government decided to let some investors pay for a new road and one of the things that was put into the contract was that in the future the government couldn't fix up a road nearby, because that road, if it was in good shape, might compete with the road that the investors paid for and people in the community just raised all sorts of alarms, like I mean how can you stick us with this rule that we can't fix other roads?

PUENTES: Yeah, this is your non-compete clauses in the contracts. It's something that comes up from time to time and it's tough. You have to achieve this right balance because there's not one simple answer and they're going to vary from place to place. They're really complex deals and we're going to have to deal with those down the line, because we know that the world of finance and funding for infrastructure projects or procurement is starting to change.

And so in order to for the United States to continue to invest in projects, this is going to have to be one of the tools in the toolkit. It's not going to solve every problem. They are absolutely not appropriate for all types of investment, but if we could find that sweet spot, we can really do a lot of good things here in the United States.

GREENE: You said that the world of finance is changing. What has changed?

PUENTES: Throughout all levels of government we are seeing squeezes, particularly when it comes to transportation. I think for a long time we expected the federal government was going to come to the rescue. We haven't really seen that and so what's happened outside of Washington is that Metropolitan areas are trying to invent new ways to get projects done in a era of really severe fiscal constraint.

GREENE: So if the economy comes back and goes on a tear, does that mean that this option might not be necessary anymore?

PUENTES: The most important thing, I think, we need to keep in mind with public-private partnerships is this is not just about finding different ways to pay for projects. Someone always is going to have to pay. This is absolutely not free money and I think they're misconstrued that way. But really, what you're finding in some of the best deals, you're finding actually a lot of innovation that's coming from the private sector that's helping some of these projects be much better, be much more efficient.

GREENE: Robert, thanks so much for talking to us.

PUENTES: Thank you very much for having me.

GREENE: That's Robert Puentes. He is a senior fellow with the Brookings Insitution's Metropolitan Policy Program. Transcript provided by NPR, Copyright NPR.